Among the most confusing elements of home theater, the subject of audio decoding methods stands the tallest. The market hype of the home theater industry will try to sell you on dozens of different "standards", but only a couple of them are really important when it comes to the quality of your home theater.
There are basically three formats on the market right now that are of significance. Dolby Pro-Logic, Dolby Digital and DTS. You will find these logos on the front of many receivers and DVD players alike.Dolby Digital 5.1 is a new format that has become more popular with the coming of DVD. This audio format offers any number of dedicated channels up to five main channels and one low frequency effect channel. Dolby Digital is the most popular current decoding method for DVDs and offers the following improvements on movie soundtracks:

DTS

DTS is a competitor of Dolby Digital. It also offers a five channel plus low frequency effect channel, but it is not compatible with the Dolby Digital soundtrack. The marketing babble that comes out of DTS says that it uses a lower form of compression which gives you a better overall sound for your movies. I personally have not found this to be the case. Listening to both DTS and Dolby Digital versions of the film gave me little sense that one was better than the other. Dolby Digital or DTS can both sound excellent or shoddy depending on the quality of the soundtrack. Regardless, I certainly recommend getting DTS compatible equipment for both your DVD player and your receiver since the cost is minimal. Many DVDs now come with both Dolby Digital 5.1 soundtracks and DTS 5.1 soundtracks, letting you pick the version to listen to. One interesting side note, Dolby Digital includes a signal compression feature for late night viewing that DTS does not. This allows you to hear dialog and quiet scenes at their normal volume while louder scenes are suppressed.

Which one do I need? Which one do I select/deselect while backing up my DVD?

What you need, depends on your current home theater system. DTS is usually for the more enthused home theater connoisseur.
I almost always encode my DVD's to Dolby Digital primary and DTS second, mainly because Dolby Digital is easier to use and more supported.

What is the difference between Dolby DIGITAL & dts? Which one should I choose?

What is the difference between Dolby DIGITAL & dts? Which one should I choose?

Dolby DIGITAL (DD) and dts are two different ways in which to encode audio. AC3 is an older term for DD and harkens from the times of Laser Disc Players. DD is from Dolby Laboratories, Inc. and dts is by Digital Theater Systems, Inc. Both are capable of encoding 5 full channels and one Low Frequency Effects (LFE) channel. The Five channels are Front Left and Right (FL, FR), Front Center (C or FC), and Rear Left and Right (RL, RR). The EX versions add a 6th Rear Center (RC) channel. So, when you see 5.1, that means. 5 Full channels and 1 LFE channel. 6.1 means 6 Full and 1 LFE etc.

Both companies obviously think that their product is better. Here are some facts. Typically, DD takes significantly less space than dts. DD also is more universally playable in more DVD players.

Here's my opinion and I don't want to get into the nitty gritty, but IN GENERAL this is what I find. dts has a higher bitrate and USUALLY sounds as good as or better than DD. dts is becoming pretty much universal these days so not being able to play it back is becoming less of an issue. However, a good point is that the dts stream cannot be previewed in DVD Shrink. dts also has a better dynamic range than DD (The difference between the soft and loud sounds is greater).

So, for viewing purposes, knowing nothing else about how the DVD was authored, I would choose dts for the clearer, more dynamic sound. There ARE instances where DD can sound better, but if you care that much, you probably don't need to read this FAQ. At night, I usually choose DD because of the smaller dynamic range so I don't bother others.

For Shrinking, here is my advice. If you can fit both, the answer is obvious. Now many claim not to be able to hear a difference. For those people, the answer is simple. Use DD because of smaller size and greater compatibility. If you can only fit one or the other without affecting the video, use dts if you are a quality nut, DD if you want greater compatibility. If you have to sacrifice video using either, it is a judgement call. If video quality is more important than audio, use DD. Use dts if you prefer audio. If you have ANY DVD players such as a laptop that does not handle dts, you may want to stick with DD because you never know when you need to play the back-up in that machine.